Unique Ruling Regarding Joint CERCLA Liability and Government Contracting Law and Practices

Lockheed Martin Corporation, one of the largest defense contractors in the United States, operated three California facilities that manufactured solid-propellant rockets for the United States Department of Defense pursuant to contracts subject to the Federal Acquisition Regulations. Substantial quantities of hazardous substances were released by the facilities over the years which resulted in extensive environmental contamination, especially groundwater pollution. In 2008, Lockheed filed a CERCLA Section 107 cost recovery lawsuit against the United States, seeking the recovery of its past and future costs to remediate these sites. The lawsuit was filed several years after the company began remediation activities at these sites. Both Lockheed and the United States have conceded that they are potentially responsible parties at these sites. The United States in turn, filed a CERCLA contribution action against Lockheed, and this long and costly litigation resulted, which the U.S. Court of Appeals for the DC Circuit may have brought to an end. The case is Lockheed Martin Corporation v. U.S., decided August 19, 2016.The District Court, after an extensive trial, held that the equitable allocation for the past costs at these sites was 0% for the United States and 100% for Lockheed. Going forward, the District Court equitably allocated future response costs between Lockheed and the United States at each of these three sites: 29% to the United States and 71% to Lockheed for the Redlands facility; 24% to the United States and 76% to Lockheed for the Potrero Canyon facility; and 19% to the United States and 81% to Lockheed for the LaBorde Canyon facility. The Court of Appeals affirmed this determination.

However, because of Lockheed’s status as a government contractor with many ongoing contracts with the United States, Lockheed has already recovered nearly 80% of the past remediation costs as well as millions of dollars to reimburse Lockheed’s legal costs—something that is not permitted under CERCLA, but the government contracts allow these legal costs to be recovered. The United States argued that all of this amounted to a double recovery that is forbidden by CERCLA Section 114, but the Court of Appeals rejected this argument, observing that by entering into these contracts and other agreements with Lockheed, “we are in no position to save the government from the consequences of its own conduct.”